{"id":18015,"date":"2021-06-07T11:11:00","date_gmt":"2021-06-07T18:11:00","guid":{"rendered":"http:\/\/www.roryc.ca\/blog\/?p=18015"},"modified":"2021-06-01T14:34:12","modified_gmt":"2021-06-01T21:34:12","slug":"inflation-threatens-to-push-some-homebuyers-into-precarious-financial-positions","status":"publish","type":"post","link":"https:\/\/www.roryc.ca\/blog\/2021\/06\/inflation-threatens-to-push-some-homebuyers-into-precarious-financial-positions\/","title":{"rendered":"Inflation Threatens to Push Some Homebuyers into Precarious Financial Positions"},"content":{"rendered":"<p style=\"text-align: justify;\">Young homebuyers have found themselves in a \u201cweird downturn\u201d over the past year, according to Tom Davidoff.<\/p>\n<p style=\"text-align: justify;\">\u201cWhen you\u2019re stuck at home, it\u2019s nice to have a bigger home,\u201d said the housing expert, who is an associate professor and director of the Centre for Urban Economics and Real Estate at the University of British Columbia.<\/p>\n<p style=\"text-align: justify;\">Demand for larger dwellings and record-low interest rates brought on by the central bank\u2019s efforts to spur economic growth have resulted in young buyers spilling out to the suburbs armed with enviable mortgage rates. The British Columbia Real Estate Association reported 13,683 residential units were sold across the province in April 2021 \u2013 up 312% from a year earlier.<\/p>\n<p style=\"text-align: justify;\">But could these first-time buyers \u2013 those who\u2019ve known only low interest rates since entering the workforce \u2013 find themselves overextended when they renew their mortgages?<\/p>\n<p style=\"text-align: justify;\">\u201cThat\u2019s what the stress test is for, which is what I think is a prudent thing for a government program to have in place,\u201d said Davidoff. \u201cUnder traditional financing groups, you\u2019re going to be OK as long as rates are below 5.5% to 6%.\u201d<\/p>\n<p style=\"text-align: justify;\">The Bank of Canada has signalled it will keep the overnight rate low for now, but inflationary pressures have been building not only in Canada but also in other major economies. The central bank might be pushed towards a rate hike sooner than expected to counter those pressures.<\/p>\n<p style=\"text-align: justify;\">Canada\u2019s annual inflation rate hit 3.4% in April \u2013 up 1.2 percentage points \u2013 to reach its highest level in a decade.<\/p>\n<p style=\"text-align: justify;\">Meanwhile, headline inflation has expanded 2.3 percentage points over the past two months, representing its fastest two-month acceleration since the early 1950s, according to Benjamin Reitzes, BMO Capital Markets\u2019 director of Canadian rates.<\/p>\n<p style=\"text-align: justify;\">\u201cThe surge in headline inflation should come as a shock to absolutely no one. However, the breadth of the strength in CPI [consumer price index] this month, when much of the country was in lockdown or under tightening restrictions is notable,\u201d he said in a May 21 note.<\/p>\n<p style=\"text-align: justify;\">Reitzes expects the Bank of Canada to take the latest data in stride for now and see what the next few months bring before reacting.<\/p>\n<p style=\"text-align: justify;\">In a March report co-authored by Reitzes and BMO senior economist Robert Kavcic, the pair cautioned, \u201cThe market has long been smoldering thanks to fundamentally driven pressure from demographic and supply-side factors. Now, fuel has been poured on the fire in quantity. Record-low interest rates have lowered mortgage costs and central bank guidance is cementing expectations that there is little to stop prices from moving higher.\u201d<\/p>\n<p style=\"text-align: justify;\">Scott Evans, a senior financial adviser at BlueShore Financial, said the traditional stress test alone won\u2019t help young buyers avoid becoming overextended.<\/p>\n<p style=\"text-align: justify;\">\u201cI like to talk about having your own family stress test,\u201d he said. \u201cWhen you do your bank stress tests they\u2019re not going to take into account things like putting your kids through daycare and some of these other expenses.\u201d<\/p>\n<p style=\"text-align: justify;\">Homebuyers should take all these additional expenses into account when thinking about their mortgage renewals, Evans added.<\/p>\n<p style=\"text-align: justify;\">He\u2019s also urging homebuyers to carefully examine the terms of conditions of mortgages.<\/p>\n<p style=\"text-align: justify;\">\u201cSome mortgages allow you to do what\u2019s called a blend and extend \u2026 where let\u2019s say you\u2019re into your mortgage \u2013 two years into it or you\u2019re three years into it \u2013 you could talk to your lender, let\u2019s say over the last 12 months when rates were sub 2%, and say, \u2018Hey, I know I paid 3%, but boy, I\u2019d like to take advantage of the low rates today,\u2019\u201d Evans said.<\/p>\n<p style=\"text-align: justify;\">\u201cAnd you could blend your rate and renew it for another five years.\u201d<\/p>\n<p style=\"text-align: justify;\">Meanwhile, Davidoff pointed out that buyers now getting into the market are typically not the ones hit hardest by the pandemic\u2019s economic impact. Instead, lower-wage workers in the service sector continue to depend on rental housing.<\/p>\n<p style=\"text-align: justify;\">And Davidoff isn\u2019t convinced Canada will see a return to the kind of sky-high inflation characteristic of the 1980s.<\/p>\n<p style=\"text-align: justify;\">\u201cPeople might not get killed if rates rise, but it\u2019s not obvious that rates will rise,\u201d he said, adding, however, that he is \u201cconfident there are people who are caught in a frenzy.\u201d \u2022<\/p>\n<p style=\"text-align: justify;\"><a href=\"https:\/\/biv.com\/article\/2021\/06\/young-homebuyers-tread-housing-tightrope\" target=\"_blank\" rel=\"noopener\">Young Homebuyers Tread Housing Tightrope<\/a> by Tyler Orton | BIV<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Young homebuyers have found themselves in a \u201cweird downturn\u201d over the past year, according to Tom Davidoff. \u201cWhen you\u2019re stuck at home, it\u2019s nice to have a bigger home,\u201d said &hellip; [<a href=\"https:\/\/www.roryc.ca\/blog\/2021\/06\/inflation-threatens-to-push-some-homebuyers-into-precarious-financial-positions\/\">read more<\/a>]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"class_list":["post-18015","post","type-post","status-publish","format-standard","hentry","category-real-estate"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Inflation Threatens to Push Some Homebuyers into Precarious Financial Positions &#8226; Rory C Real Estate | Oakwyn Realty<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.roryc.ca\/blog\/2021\/06\/inflation-threatens-to-push-some-homebuyers-into-precarious-financial-positions\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Inflation Threatens to Push Some Homebuyers into Precarious Financial Positions &#8226; 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